The Big Mistake Investors Make About ‘Overpriced’ Moat Stocks

Many investors avoid the world's best businesses, fearing they are too expensive. Today's Oracle of Finance made his fortune in part by proving that's not true.

Businesses with "moats" have a durable advantage that protects them against competition, and they often are expensive to invest in, but it's still possible to get them at a bargain.

Businesses With Great Moats

But first, let's describe what a moat is. A moat is a durable advantage that allows a business to earn high returns for years, sometimes decades. Companies with durable moats include:

• UPS, due to its scale and unmatched route density
• Boeing, which benefits from regulatory and capital barriers
• Otis, because it has a large installed base that delivers recurring service revenue

Okay, the explanation is over.

Why Great Companies Are Sometimes Cheap

Now let's get to today's Oracle of Finance, Paul Larson. Larson was formerly an equity strategist at Morningstar and a portfolio manager at Invesco. He now runs his own family office.

While at Morningstar, Paul gave one of the best explanations of why investing in moat stocks can be extremely profitable:

In reality, high-quality companies get cheap more often than one intuitively might think. The market is incredibly myopic and falls into a mental trap known as recency bias. Namely, we as humans systematically take the situation as it exists today and extrapolate it far into the future.

If a high-quality company has some sort of short-term issue that temporarily depresses earnings, the stocks will often get cheap on the mistaken expectation that the problem will last in perpetuity.

But if we are focused on moats and the long run, we can see beyond short-term issues. You might say that by focusing on moats we can more easily see opportunities for time- horizon arbitrage.

— Paul Larson

What to Do Next

The VanEck Morningstar Wide Moat ETF (MOAT) is a low-cost ETF holding more than 50 high-moat businesses. Investors might buy the ETF itself or explore some of its holdings for possible direct investment. Over the 12 months to January 2026, MOAT's price growth was 16.51%, versus 9.8% for the S&P 500.

To read more about moats, get a copy of The Little Book That Builds Wealth by Pat Dorsey. The author was Director of Equity Research for Morningstar, Inc. He dives into why moats are such strong indicators of great long-term investments and how to apply this knowledge to your own portfolio.

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